Wednesday, February 24, 2010
Promotion (15% discount) will end on 28 Feb 2010
The Promotion (code - BLOG) to earn 15% discount on my books will end in 3 days time - 28 February 2009. Order now.
Temasek 15 year bond
My bank told me that Temasek 15 year bond is available in the secondary market at a yield of 3.65%. There is a commission of 0.5% payable to the bank. The minimum investment amount is $200,000.
Decreasing Term Insurance
I have been advising consumers to buy a Decreasing Term Insurance (DTA). This will cost less than half of a Level Term Insurance.
For example, a male aged 30 can insure for $300,000 for 25 years by paying an annual premium of (say) $500. If this person buys a DTA, the annual premium can reduce by at least half, i.e. $250. (Note: the actual premium is likely to be lower, if you ask for competitive quotes from several companies).
Under a DTA, the sum insured will reduce proportionately each year. In the above example, the sum insured is $300,000 during the fitst year, and will reduce by $12,000 each year (i.e. $300,000 divided by 25). In the final year, the sum insured will only be $12,000.
It make sense to buy a DTA as the consumer is likely to have savings each year that will cover the reduction in the sum insured. For example, the savings can be $12,000 a year in the above example.
In the event of premature death, the sum insured under the DTA can be added to the accumulated savings to make a total sum that is sufficient to take care of the needs of the dependents. The policy payout can be invested with the accumulated savings in a low cost investment fund to earn a market rate of return (perhaps 5% per annum, after averaging out the good and bad years). The family can make a monthly drawdown (say $1,500 a month) from the accumulated savings to meet their needs. The total amount can last for many years, depending on the amount that has been saved.
A good combination is to have a DTA to provide a large sum to be supplemented with monthly savings that are invested in a low cost, well diversified fund.
A DTA is similar to the cover provided by a life insurance policy. Although the policy provides a level sum insured, the amount that is being insured actually reduces over the years, as the cash values are built up from the investment of the net premiums.
Many of the insurance companies in Singapore do not offer attractive rates for DTA. It may be neccessary for consumers to buy DTA outside of Singapore. You can try to get quotes from websites in America that offer this type of policy. When consumers have a choice, the life companies in Singapore will be forced to offer this type of policy on competitive rates.
Tan Kin Lian
For example, a male aged 30 can insure for $300,000 for 25 years by paying an annual premium of (say) $500. If this person buys a DTA, the annual premium can reduce by at least half, i.e. $250. (Note: the actual premium is likely to be lower, if you ask for competitive quotes from several companies).
Under a DTA, the sum insured will reduce proportionately each year. In the above example, the sum insured is $300,000 during the fitst year, and will reduce by $12,000 each year (i.e. $300,000 divided by 25). In the final year, the sum insured will only be $12,000.
It make sense to buy a DTA as the consumer is likely to have savings each year that will cover the reduction in the sum insured. For example, the savings can be $12,000 a year in the above example.
In the event of premature death, the sum insured under the DTA can be added to the accumulated savings to make a total sum that is sufficient to take care of the needs of the dependents. The policy payout can be invested with the accumulated savings in a low cost investment fund to earn a market rate of return (perhaps 5% per annum, after averaging out the good and bad years). The family can make a monthly drawdown (say $1,500 a month) from the accumulated savings to meet their needs. The total amount can last for many years, depending on the amount that has been saved.
A good combination is to have a DTA to provide a large sum to be supplemented with monthly savings that are invested in a low cost, well diversified fund.
A DTA is similar to the cover provided by a life insurance policy. Although the policy provides a level sum insured, the amount that is being insured actually reduces over the years, as the cash values are built up from the investment of the net premiums.
Many of the insurance companies in Singapore do not offer attractive rates for DTA. It may be neccessary for consumers to buy DTA outside of Singapore. You can try to get quotes from websites in America that offer this type of policy. When consumers have a choice, the life companies in Singapore will be forced to offer this type of policy on competitive rates.
Tan Kin Lian
Transparency in life insurance
A life insurance policy provides two useful services:
a) insurance against premature death
b) investments of savings for the future.
For the first service, the consumer wants to pay a fair price. The consumer does not want to be overcharged,compared to similar insurance offered by other providers. For the second service, the consumer wants to get a fair yield, comparable to the yield that can be obtained from other investments with similar risk profile.
A good insurance policy is transparent and give good value to the consumer. Unfortunately, there are many life insurance products that are not transparent and give poor value to the consumers. It is difficult for the consumer to distinguish between the good and bad products.
The benefit illustration for the insurance product can give some indication about the fairness of the charges and the yield. Look at the distribution cost, which is the amount that is taken from your savings. If it is $1,000 or more, it seems to be excessive. Do you really want to pay such a high fee to the insurance agent, who may be someone that you do not know previously? This fee is taken away from your savings, which is the same as being paid directly.
You can also look at the "effect of deduction". This is the total amount that is taken away from your "accumulated premiums" during the lifetime of the policy. If this amounts to a high percentage of the accumulated premiums, then you are being offered a policy of poor value.
I have written a separate article about the the percentage that is fair, and the percentage that is excessive. If you are not sure, you can write to me at kinlian@gmail.com. I can answer you directly or refer you to FISCA, www.fisca.sg
A life insurance policy can represent a large part of your future savings for a lifetime. Make sure that you get a fair deal and a good yield. Make sure that you are being advised by a honest agent who takes care of your interest (and not his own personal gain). Do not make a bad investment that will penalise you for a lifetime.
Tan Kin Lian
a) insurance against premature death
b) investments of savings for the future.
For the first service, the consumer wants to pay a fair price. The consumer does not want to be overcharged,compared to similar insurance offered by other providers. For the second service, the consumer wants to get a fair yield, comparable to the yield that can be obtained from other investments with similar risk profile.
A good insurance policy is transparent and give good value to the consumer. Unfortunately, there are many life insurance products that are not transparent and give poor value to the consumers. It is difficult for the consumer to distinguish between the good and bad products.
The benefit illustration for the insurance product can give some indication about the fairness of the charges and the yield. Look at the distribution cost, which is the amount that is taken from your savings. If it is $1,000 or more, it seems to be excessive. Do you really want to pay such a high fee to the insurance agent, who may be someone that you do not know previously? This fee is taken away from your savings, which is the same as being paid directly.
You can also look at the "effect of deduction". This is the total amount that is taken away from your "accumulated premiums" during the lifetime of the policy. If this amounts to a high percentage of the accumulated premiums, then you are being offered a policy of poor value.
I have written a separate article about the the percentage that is fair, and the percentage that is excessive. If you are not sure, you can write to me at kinlian@gmail.com. I can answer you directly or refer you to FISCA, www.fisca.sg
A life insurance policy can represent a large part of your future savings for a lifetime. Make sure that you get a fair deal and a good yield. Make sure that you are being advised by a honest agent who takes care of your interest (and not his own personal gain). Do not make a bad investment that will penalise you for a lifetime.
Tan Kin Lian
Shape Quiz Minipak
I gave the shape quiz mini-pak to a few friends at a lunch. They were amazed at the challenge in forming the shapes. I showed them the approach and to solve some of the shapes using "out of the box" thinking. They also have to follow a systematic approach, i.e. to analyse the shape first, before trying to solve it. It helps to develop the thinking process. You can try the Shape Quiz here for free. The mini-pak sells for $2 and can be ordered here.
Renting and owning a property
Many decades ago, when properties were inexpensive, it was advantageous to buy a property to live in, rather than to rent a property.
The situation has changed. Property prices are high. It may be possible to find a rental property that cost much less than the installment payment to buy a home. In this situation, renting a property may be a more attractive option.
One big advantage of renting a property is the flexibility. You can rent a property that is close to your place of work and reduce the travelling time and expenses. If you change your workplace, you have the flexibility to move to a new rented property.
Many people still like to invest in properties to earn a rental income. This is not as attractive as in past years. It is a hassle to rent out a property and to meet the requests of tenants on repairs, maintenance and other issues. The tenant may not take care of your property or may delay paying the rental. You also have to pay commission to get a tenant.
After deducting the expenses, the net yield on a property is between 2% to 3% (and not counting the hassle that you had to go through). You hope that the yield can be enhanced when you sell the property for a capital gain. But this is not certain, as the value of the property will drop due to age and a shorter lease period. While the price of new property may increase, the high rate of increase does not apply to old properties.
It does not make sense to own a property for renting out. It make better sense to be a tenant. This situation is likely to persist until property prices drop to a more sensible level.
Tan Kin Lian
The situation has changed. Property prices are high. It may be possible to find a rental property that cost much less than the installment payment to buy a home. In this situation, renting a property may be a more attractive option.
One big advantage of renting a property is the flexibility. You can rent a property that is close to your place of work and reduce the travelling time and expenses. If you change your workplace, you have the flexibility to move to a new rented property.
Many people still like to invest in properties to earn a rental income. This is not as attractive as in past years. It is a hassle to rent out a property and to meet the requests of tenants on repairs, maintenance and other issues. The tenant may not take care of your property or may delay paying the rental. You also have to pay commission to get a tenant.
After deducting the expenses, the net yield on a property is between 2% to 3% (and not counting the hassle that you had to go through). You hope that the yield can be enhanced when you sell the property for a capital gain. But this is not certain, as the value of the property will drop due to age and a shorter lease period. While the price of new property may increase, the high rate of increase does not apply to old properties.
It does not make sense to own a property for renting out. It make better sense to be a tenant. This situation is likely to persist until property prices drop to a more sensible level.
Tan Kin Lian
Mental training with Intellivence Quiz
The Intelligence Quiz looks difficult, but with some training (following the tips in the book), it becomes manageable. More important, it is a mental exercise that trains you to focus the mind and adopt a systematic approach. Even primary students find it challenging and fun.
You can download a PDF with this puzzle from this website free. If you wish to buy the book, click here. Enjoy a 15% discount up to for the rest of this month (promotion code - BLOG).
You can download a PDF with this puzzle from this website free. If you wish to buy the book, click here. Enjoy a 15% discount up to for the rest of this month (promotion code - BLOG).
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